Filings required by the U.S. Securities and Exchange Commission are always important documents for investors and analysts, but rarely are they must reads.  However, the recent 10-K filing by Hertz Global Holdings Inc. provides an intriguing exception. An explanatory note on the filing effectively makes its former CEO the scapegoat for a hoard of accounting and internal control problems at the multi-billion-dollar company.

The deficiencies described in the 10-K, which forced the restatement of the corporation’s 2012 and 2013 filings, are placed squarely at the feet of — or more precisely heaped on the back of — the former chief executive, whose management style somehow led to extensive material weaknesses and internal control failures at Hertz.

While the Hertz filing is not the first 10-K to include self-reported negative information about a corporation, from my experience I am reasonably confident it is one of the first to ​so publicly skewer its former top executive. The wording is nothing short of damning:

Our investigation found that an inconsistent and sometimes inappropriate tone at the top was present under the then existing senior management that did not in certain instances result in adherence to accounting principles generally accepted in the United States of America . . . In particular, our former Chief Executive Officer’s management style and temperament created a pressurized operating environment at the Company, where challenging targets were set and achieving those targets was a key performance expectation.

That opening salvo is followed by the suggestion that the CEO created an environment that “may have” led to inappropriate accounting decisions and failure to disclose information critical to an effective review of transactions and accounting entries, “to the appropriate finance and accounting personnel or our Board, Audit Committee, or independent registered public accounting firm.”

This last phrase effectively lets everyone — except the C-suite — off the hook. Is it plausible that finance, accounting, the Board, Audit Committee or external auditor could not do their jobs because the CEO “may have” created an environment conducive to ignoring accounting rules and hiding information?

Can one person really do that?  I don’t have all the facts, and probably never will, but I don’t buy it.

I certainly do not have an insider’s knowledge about what went wrong at Hertz during the CEO’s tenure or his apparently Svengalian influence over those under him. But I find it hard to believe that no one else in the process was in a position to spot these accounting irregularities or identify internal control problems. It takes a broad-based effort of being complicit, or at least a willingness to look the other way, for such egregiousness. The list of material weaknesses blamed on the tone at the top is, I’m sorry to say, both sad and shocking:

• We did not have a sufficient complement of personnel with an appropriate level of knowledge, experience, and training commensurate with our financial reporting requirements to ensure proper selection and application of GAAP in certain circumstances.
• We did not establish clear reporting structures, reporting lines, and decisional authority responsibilities in the organization.
• We did not design effective controls over the non-fleet procurement process . . .
• We did not design and maintain effective controls over certain accounting estimates . . .
• We did not design and maintain effective controls over the review, approval, and documentation related to journal entries.
• We did not design and maintain effective controls over changes to our policies and procedures over GAAP . . .

Finally, on the eighth page of the explanatory note I ran across a confirmation to support my abject skepticism.

• Our incorrect accounting was caused by the foregoing control deficiencies, along with a complex mix of structural and environmental factors. One of those factors was the tone set and pressures imposed by our former Chief Executive Officer . . . [emphasis added]

Indeed, one of the factors that contributed to the alarmingly dysfunctional internal control process described in the filing could have been the tone at the top. One could even make the case that the tone influenced many or all of the deficient processes. But the problems at Hertz being the work a single, all-powerful and misguided leader? Really?

Further evidence to bolster my view is found in the description of the actions taken by Hertz to “remediate the identified material weaknesses.” It lists, as an example, the company’s search and hiring of a new CEO, CFO, CAO, general counsel, and more than 20 vice presidents and directors. While “cleaning house” is certainly a response to remediate such a situation, one could also conclude that this is tacit acknowledgment that the problems involved many in the C-suite.

As with other accounting scandals, there was likely someone in a position of authority who could have raised a red flag but failed to do so. While this does not always amount to complicity, it is, at minimum, arguably a dereliction of duty.

And as much as it pains me to add this, I would be remiss if I didn’t ask the question we all dread to hear: Where was internal audit? It is unfathomable to me that a well-resourced internal audit function could have missed so many glaring internal control deficiencies, nor been blind to the reported “tone at the top” issues.  [Note:  Hertz hired a new Chief Audit Executive in March of this year.]

This probably won’t be the last we hear about Hertz’s reporting and internal control woes. Regulators are likely to take a closer look at the company’s 2012 and 2013 filings which, as we all know, provide assertions on internal controls over financial reporting. So, the final chapters on what went on at Hertz, who is to blame, and what the consequences will be, have yet to be written. But, it’s hard to fathom that only one person was culpable, and I suspect that regulators won’t accept an explanation that it was all the former CEO’s fault.